Sorry to burst your bubble, but investing is math. Sure, prices are fun to watch, but they aren’t the math of collecting income from your stocks, bonds, or that nephew who owes you. That’s math. You can see the money, rent, dividends, income, and even crumpled dollars coming into your possession. That’s investing.
Look at today’s yields on bonds. Finally, you can sink your teeth into them. You can plunk $100,000 in a one-year bond yielding five percent and be pretty sure, especially in Treasurys, you’re getting $5000 plus your original outlay at maturity. You can’t say that about prices. They come and go. Having a finish line—a payday—is the easy math of bonds. But no one said doing the work was easy.
It’s hard to figure out the exact way to lay out your hard-earned cash. How should I construct my bond portfolio? You wonder. One of the nice things about using a bond ladder is that you then hold a diversified mix of maturities, much like the ages of your children. You spread them out, for example, so you’re not paying all of their college tuition in just four years. If your kids or grandkids are five or eight years old, you know what maturity you need to buy for when they’ll be in college. And yes, the yields are going to help.
Too much time is spent on the prediction of prices. “Oh, I think this stock has some room to run,” they say. And maybe it does, for now, but what about when the youngsters are ready for college or about to be? Do you really want them telling you about their “dream” school only to discover tuition was invested in some stock that tanked and they need to reconsider?
You and I know we need to take responsibility for what we can control. And the good news is the going is good for investors like us. The safe, math-focused investor hasn’t seen times like these in a while.
Action Line: Time to get your schoolhouse in order. Investing is math. Start adding up your savings, and let’s talk.
Originally posted on Your Survival Guy.